Q: I am 70 years old, single and have never owned any real estate. I have rented all of my adult life. Now, with rents constantly on the rise, I am eyeing the purchase of a condominium. Do you think it is wise for a single person of my age to consider such a purchase? What would the monthly payments be, for example, for a $75,000 purchase with $10,000 down? Is there any advantage to buying outright? I am now paying $450 a month for my apartment. A I can write a book on this question. However, let me try to give you a quick answer, but I will have to raise many more questions for you to consider at the same time.
It is too late now for you to look back and say, "I should have bought many years ago." However, I hope that some of the younger readers will give serious thought to whether they want to purchase now, rather than having your dilemma at a later date.
Although you have indicated you live in the District of Columbia, where rent control is applicable, I suspect that if the federal tax law is enacted (which it looks like it will be), rents all over the Washington metropolitan area will start to rise. Investors will be looking to purchase real estate for economic reasons, and not merely for tax shelters. Obviously, the only way one can justify making money on real estate is if the rental income is high enough.
Even in the District, I suspect that more and more landlords will start using the hardship petition route in an attempt to raise their rental income in the next few years. Additionally, as a tenant you have relatively little security. The rent can be raised, the landlord can decide to convert the building into condominiums or cooperatives, or the building can become so old that the quality of services starts to deteriorate. Again, even in the District, where there are strong tenant rights under law, tenants should not be so naive as to believe they will always be protected. Economic and market conditions certainly can change the minds of legislators.
Assuming you like the condominium unit, the next question is whether you can afford to buy it. Lenders are taking a very hard line on making mortgage loans. You have indicated you would want to borrow about $65,000. You would have to demonstrate sufficient monthly income to be able to meet the monthly payments; in your case, this would be, at a 10 1/2 percent interest rate over 30 years, for example, $594.59. This is only for the principal and interest payments. You also would have to pay real estate taxes and a monthly condominium fee.
If you have an income -- whether from retirement, pension plans or other investments -- then it would make sense for you to borrow as much as you can. Home ownership (of condominiums and cooperatives as well) still will be protected under the new tax law; interest and tax deductions will be permitted. Thus, a portion of your monthly mortgage payment will be returned to you by way of the income tax savings.
On the other hand, if you cannot qualify to borrow $65,000, you might want to talk to a mortgage lender about the possibility of borrowing less money. For example, at the same 10 1/2 interest rate over 30 years, a $35,000 loan would cost you $320.16 a month for principal and interest payments. Perhaps you would be better qualified by obtaining a smaller loan.
And if you have no taxable income, then it might make sense to either obtain a 15-year loan -- thereby paying off the loan faster -- or pay all cash for your unit.
Again, there is no easy answer to your question. What do you intend to do with your estate? Under current law, it might be better to leave a $75,000 condominium unit in your will than to leave $75,000 in cash. The estate tax discussion is too complex to be included in this column, but you certainly should discuss this issue with your tax counselor.
Another question that has to be asked is whether there will be any appreciation of your unit. Many condominiums are currently up for sale on the market, and the real estate industry is telling us that the condominium market is somewhat soft. This means that you (or your heirs) may have a hard time selling the property if the need to sell ever arises.
There are many other questions you must ask before you decide to jump into the purchase of a condominium. For example, does the neighborhood meet your needs? Would you be near convenient shopping, transportation and entertainment? Does the condominium have any amenities, such as an exercise room or a swimming pool? Are there rules and regulations in the condominium association that might be unacceptable to you? More and more condominium associations are imposing rigorous rules and regulations in areas such as parking, pets and piano lessons.
Before you take the next step, I suggest you make the following inquiries. Talk to your tax counselor to determine your financial needs and requirements. Talk to a mortgage lender to determine whether you can qualify for a loan, and, if so, in what amount. Talk to residents of the condominium association to determine whether this particular condominium is for you.
You have indicated that you have been renting apartments all of your adult life. There is a major difference between owning a condominium and renting an apartment. You have greater responsibilities as an owner; and indeed, if you do join a condominium association, you should plan to become involved in its activities.
All too often, apathy is strong among owners of condominium units. As a result, boards of directors either become too strong or find themselves with little or no guidance from their membership. Benny L. Kass is a Washington attorney. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed, stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers also may send questions to him at that address.